There are two changes proposed for UK taxpayers receiving dividends from abroad.
At the moment, UK individual taxpayers owning shares in a foreign company are not entitled under UK domestic law to any tax credit on a dividend paid by that company. This is in contrast to a dividend paid on a UK share, where the dividend carries a non-repayable tax credit. From 6 April 2008 the same tax credit will be extended to overseas dividends, where the individual holds less than 10% of the company, and has total overseas dividends of less than £5,000. This effectively brings the taxation of such dividends into line with UK dividends, irrespective of the tax regime and treaty arrangements of the country in which the company resides.
At the same time, the regime becomes more penal for non-domiciled taxpayers who receive overseas dividends under the remittance basis. Historically, such dividends were taxed at the individual’s normal marginal rate. However, at present, they are only taxed at the UK dividend rate, 32.5% rather than 40% for higher rate taxpayers. This was a change HMRC never intended, and legislation will now return the position to its original state.
Non-domiciled taxpayers who, from 6 April 2008, pay tax on the arising basis rather than the remittance basis will continue to be taxed at 32.5%.
